Australia is punching well above its weight in the superannuation space with 15 Australian superannuation funds listed in the top 300 pension funds globally, reports Willis Towers Watson’s Thinking Ahead Institute.

Australian funds make up only 4.1 per cent of the total pension assets globally, but it does slightly better in the top 300 pension asset list with 4.2 per cent of the total, or $US974 billion, invested.

As the chart below shows, Australia plays well for its size, beating the UK which has a far bigger population and coming in behind the United States and Japan.

Norway and the Netherlands have lower populations than Australia, however they have higher pension savings for specific reasons.

Norway has a large national wealth fund seeded by its massive oil revenues and the Netherlands has a more generous age pension system which saves for individuals who may also sign up to a private pension.

But just because your fund made it into the top 300 globally doesn’t mean it is giving you a top return in  the local market. Let’s have a look at the 15 funds that made the Thinking Ahead Institute’s top 300 list.

Many of the funds listed in the 15 that made it into the global top 300 pension funds are industry funds that have performed well over time. These include AustralianSuper, Aware – a fund made up of what were Victorian, WA and NSW state government funds – along with REST, HESTA, Cbus and Hostplus.

Some, says SuperRatings director Kirby Rappell, are state government related operations like GESB, ESS Super and Super SA. These have a relatively large percentage of old-style, defined benefit membership arrangements which in turn have been funded by the states to pay their commitments to public servants’ pensions.

Defined benefit vs defined contribution

The fact that 15 Australian funds made it into the top 300 does not surprise Mr Rappell.

“If we look at the level of retirement assets Australia has got versus other global markets we are head and shoulders above where most comparable-sized countries would be,” Mr Rappell said.

That in part is because most overseas markets focus on defined benefit payments which guarantee members a certain income on retirement. The survey found that 63.5 per cent of pensions are defined benefit, while only 23.8 per cent are defined contribution.

In Australia, the overwhelming majority of member accounts are in the defined contribution category which allows Australian funds to have far lower bond holdings and consequently far more money invested in shares and unlisted assets like private equity, venture capital and unlisted property.

There’s a difference

Funds with majority defined benefit membership must have a lot of money invested in bonds to ensure they have cash on hand to pay for members’ retirements as called upon.

However, for Australian funds the emphasis is investing for growth because they pay members a percentage of what the fund has built up as they retire. That frees funds to invest more in equity style assets that build their funds quickly.

That has resulted in Australian super funds growing quickly and making it into the 300 list in this survey.

Let’s look at the top 10 returning Australian funds over three years, according to SuperRatings.

Many of the funds that made it into Thinking Ahead Institute’s top 15 funds are also listed in the SuperRatings top 10 over three years. These include AustralianSuper, Australian Retirement Trust which was formed on the merger of Sun and Q Supers, Hostplus and HESTA.

But a few smaller funds performed well over three years to October 31. So, it’s not all about size.

They included Qantas’s corporate fund, Christian Super and Care Super which also performed well over time. If you look back over a longer period of time, say five years, many of the funds in the top 300 did well. A number were listed in the top 10 SuperRatings performers over five years, earning members between 6.13 to 7.29 per cent annually.

Thinking Ahead Institute’s top 300 averaged growth of 8.3 per cent over five years from 2016 to 2021. But don’t be depressed if your Australian fund didn’t earn that much over those years.

Good performance

What Thinking Ahead Institute was measuring to get to its 8.3 per cent is both fund returns and the growth of funds caused by new member contributions. The Australian average return for a growth fund over that time was 6.4 per cent, according to Chant West.

That is a good performance without new member contributions being included.

Roger Urwin, co-founder of the Thinking Ahead Institute, said: “These big asset owners control the world’s most influential capital and hold great responsibility and growing influence in relation to their beneficiaries and to a widening group of stakeholders.”

That applies also to the Australian super industry which is increasingly seeking to influence the way the economy evolves using environment, social and governance (ESG) principles to drive investment decisions.

The New Daily is owned by Industry Super Holdings